Bin Laden bled U.S. of a cool trillion

HONG KONG – Osama bin Laden must be laughing from his watery grave. In announcing a new policy of “bleeding America to the point of bankruptcy,” he mockingly declared in a 2004 video that “It is easy for us to provoke and bait. … All that we have to do is to send two mujaheddin … to raise a raise a piece of cloth on which is written ‘al-Qaida’ in order to make the generals race there to cause America to suffer human, economic and political losses.”

The simple and simplistic answer to the question of how much it cost the United States finally to find and kill bin Laden is a few million dollars for equipment, fuel and write-off of a helicopter plus months of careful planning. The political bill, in relations with Pakistan, may take longer to come in.

However, the alarming longer answer is that it has cost more than $1 trillion, and maybe as much as $3 trillion to $5 trillion if all the costs are properly accounted of the “war on terrorism.” Bin Laden is dead, but those costs continue rolling on, and raise huge questions about the financial and economic competence of the U.S. government, not to mention its political priorities.

This is not a philosophical discussion about how many angels can dance on the head of a pin, but a series of decisions for real spending of real taxpayer dollars and real changes in business and lifestyle behaviors of Americans and anyone dealing with them. Much of the spending is done under the guise of national security, meaning that money gets spent without proper questioning, let alone the sort of cost-benefit analysis that other government departments and all respectable businesses are regularly expected to do or they will go bankrupt.

Governments strictly speaking do not go bankrupt, least of all that of the U.S., whose IOUs, otherwise called dollars, are the global currency. Nevertheless, the U.S. is bleeding and spending money unwisely.

Economists including my old World Bank colleague Joe Stiglitz have questioned the massive spending on the Iraq and Afghanistan wars, claiming controversially that their cost will be $3 trillion when everything is added up.

It has taken longer to get an accounting of the costs of the war on terror. Now two university professors, John Mueller, a national security expert at Ohio State University, and Mark Stewart, a civil engineering and infrastructure expert at the University of Newcastle, New South Wales, calculate the increased security bill at $1.1 trillion for 2002 to 2011.

Pointedly, they omit from their accounting the costs of the wars in Iraq and Afghanistan — so throw in another trillion dollars or so if you believe that these wars are terror-related. They also exclude a long string of costs, some minor, such as the extra fuel cost to airlines because of heavier protected flight deck doors and having to give free seats to federal air marshals, and others tangential but very real, such as crime facilitated by police preoccupation with terrorism, effects on tourism and property values, and cutbacks to Medicare, Medicaid, education and social security because of mushrooming homeland security budgets.

Mueller and Stewart estimate that the enhanced direct expenditures in the 10 years come to $690 billion, of which the U.S. Department of Homeland Security extracted $360 billion. Another $417 billion comes from “opportunity costs,” including $40 billion in terrorism risk insurance premiums, $100 billion in passenger delays caused by airport screening and $245 billion in deadweight losses and losses in consumer welfare, through falls in economic activity and increased taxes. However much you may quibble with some figures, these are big sums.

The professors raise the important question of whether the increased expenditure on security is worth it. Their conclusion is that no self-respecting company would spend so heavily without conducting a proper analysis of the costs and benefits of the spending.

Yet by 2006, when the Department of Homeland Security had already become the largest nonmilitary bureaucracy in the U.S., one of its senior economists admitted, “We really don’t know a whole lot about the overall costs and benefits of homeland security.”

James Thomson, the president of RAND Corporation, claimed that top department officials “manage by inbox … with little or no evaluation” of their performance or effectiveness. In other words, if a problem or new security scare arises, throw more money at it in the form of new measures in the name of security. One of the latest was the deployment at U.S. airports of full-body scanners costing $1.2 billion a year, but with no estimate of benefits.

Mueller and Stewart can find only a single published reference to a numerical estimate of risk reduction, and can “find no reference whatever to the likelihood of a terrorist attack beyond vague references such as ‘high,’ ‘imminent,’ ‘dynamic,’ ‘persistent’ and ‘emerging.'”

Politicians and security bosses inflate the risks of terror attacks in the face of the evidence. FBI Director Robert Mueller ominously said in 2005 when failing to unearth any al-Qaida cell in the U.S., “I remain very concerned about what we are not seeing.” Only New York Mayor Michael Bloomberg, a highly successful businessman, dared challenge the prevailing wisdom when he advised that people should “get a life” since they have a greater chance of being struck by lightning than by a terrorist.

He’s right. When the so-called underwear bomber failed in December 2009, there had been one terrorist incident for every 16.5 million flights. Since 9/11, between 200 and 300 people have been killed by Muslim extremists outside war zones each year. This includes atrocities committed by al-Qaida, its imitators, enthusiasts, look-alikes, wannabes and those with no connection. During the same period, 320 people a year drowned in bathtubs in the U.S. and the switch from flying to driving is estimated to have added 500 extra road deaths a year.

Gains in the war against terror have been made by quiet intelligence, not by throwing large sums of money in inconveniencing business and life at large. Mueller and Stewart claim enhanced security expenditures have been “excessive: to be deemed cost-effective … they would have to deter, prevent, foil or protect against 1,667 otherwise successful Times-Square attacks per year, or more than four a day.” The Times Square bomber drove an SUV packed with explosives into the busy heart of New York in May last year.

To use other incidents as benchmarks, the heavy spending would only be cost-effective if it deterred 30 London 7/7 attacks (2005) per year, or more than one terrorist attack per year on the scale of 9/11. Whether bin Laden’s death will cause America to think again about spending wisely is more than a $1 trillion question.